What is mortgage and how it really works

What is mortgage and how it really works

Posted by on Oct 30, 2016 in Mortgage

What is mortgage and how it really works

There are a lot of people who are eager to move away from home and start their own families without their parents in the same house. People who want to start a new business and try to reach success on their own. But, they don’t have enough capital to actually do so. If you are one of those people, we suggest you stick around and read what’ve we have in store for you today. Today we will talk about mortgage, the one thing that can help you achieve your goals. Now, to begin with, mortgage is one of the most important financial decisions you will ever take. So if you ever decide to take it, be sure to think long and hard before you do that. And inform yourself about everything there is to be informed about. To help you better understand mortgage and how it works, we have prepared this little article.

Mortgage is a secured loan. Being a secured loan makes it a lot different than other kinds of loans you might take for your car or a credit card. If you’re taking a loan for a car or credit card debt, you’re taking an unsecured loan. What is the difference between secured and unsecured loan? Well, secured loan works like this. You go to a bank and ask for hundred thousand dollars loan. The bank says, alright, but we will need that loan secured. The loan will be secured on an asset you’re planning to buy ( let’s say you’re buying a house worth a 100 thousand dollars).

insurance-claimsNow this deal is both sided. Banks love secure loans. If you agree to participate in a secured loan, you will have much lower interest rates. And we’re talking much, much lower, for the arguments sake let’s say the interest rate will be 4 percent. And if you’re taking unsecured loans, the interest rates may go up to even 30 percent. But why banks love this arrangement is of course not because of low interest rate, but because if you fail to repay the debt. They will legally seize your house and sell it in order to retrieve what they loaned.

More Advantages

Another advantage of taking a mortgage is because the deal is secured, you can take more than one. If they know they can get the invested money back by seizing your property, they won’t have any problems lending you as much money as you want.But there is one trick to it. The banks will never lend you the exact amount of what your hypothetical house might cost. Like we mentioned above, let’s say the house costs a hundred thousand dollars, the bank will ask for a deposit first, and this deposit, let’s say is 30 thousand dollars you will have to pay up front.

The bigger the deposit is, the more likely you are to be given a loan. On the plus side, the interest rates will be a lot lower than they would have been if you deposited only 10 thousand dollars.


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